Sunday, June 15, 2008

The State of West Virginia just went through another agonizing attempt to corral its pension problems. The multibillion-dollar problem in the old Teachers Retirement Fund is still so large that it blights the state's attempts to raise teacher pay. Big holes are difficult to fill, and the Manchin administration and the Legislature have thrown in money hand over fist in an attempt to do that.

Such public pension problems are widespread, affecting municipalities and states across the land. And the gulf between what private-sector workers collect in benefits - and what they as taxpayers provide for public employees - is increasingly a matter of contention. Lewis M. Andrews, writing in Human Events earlier this year, referred to a couple of statistics that increasingly will lodge in the public mind:

"August 2006 data from the U.S. Bureau of Economic Analysis shows that the average federal civilian worker earns $106,579 a year in total compensation, or twice the $53,289 in wages and benefits for the typical private employee," he wrote. "Since 2000, federal pay has risen 38 percent, or double the pay increases for workers in manufacturing, retail, finance, private health care, and construction."

At the state level, the Employee Benefit Research Institute found that government workers have been collecting nearly 50 percent more in total compensation than the average private-sector employee, "with taxpayers subsidizing 128 percent more than private employers to fund health care benefits, and 162 percent more on retirement benefits."

Private-sector taxpayers will in the coming years increasingly ask why. Who is working for whom here?

The Government Accounting Standards Board, the national association of public finance officers, has set in motion requirements that will increase the pressure, telling states and municipalities to set aside money for workers' benefits after retirement.

The public from whom those funds will be extracted will find those numbers Interesting. In 2007, the Pew Center on the States estimated state and local governments have underfunded benefits by about $731 billion.

People whose household budgets are stressed by $4-a-gallon gasoline surely will want to talk about why they should part with more of their income to fund benefits for people who have more.

Unlike Ohio, where the State Teachers Retirement System is ostensibly an agency independent of the state government, in West Virginia the Teachers Retirement Fund is an agency OF the state government. More on that in a minute.

In the 'everyone's making money in the stock market' days of the 1990s, people in defined benefit pension plans began to wonder if they were leaving money on the table by being trapped in these plans when their friends with 401(k) plans were seeing the value of their retirement accounts soar - many becoming paper millionaires.

That happened with the teachers in WV, so they were given the option to jump from their conservative but guaranteed defined benefits plan to a defined contribution plan, much like a private company's 401(k) plan with employer contributions.

Then we had the big bust in the stock market. Many of us in the private sector saw the value of our 401(k) plans get cut in half. Thousands of my coworkers at Worldcom who chose to invest 100% of their 401(k) accounts in Worldcom stock - once the darling of Wall Street - saw their money completely evaporate. Most Americans learned some important lessons, including that the stock market is not something in which to invest your life savings unless you understand how it works, and few did. They just got caught up in the gold rush, and many were wiped out.

The WV teachers who had jumped into their defined contribution plan took the same kind of hit. But instead of licking their wounds, and maybe even teaching their students about their mistakes, they're now crying that they were duped into buying into the defined contribution option, and want now to be restored to the defined benefits system as though nothing had happened.

Except something did happen - those teachers took the balance of their defined benefit account, moved it to their defined contribution account, then lost most of it in the stock market. It was real money that had been building up to fund their defined benefit pension when they retired, and it's gone. Where is the money going to come from to fund their pensions now?

The taxpayers of the State of West Virginia. While there are some bright spots in West Virginia (especially in places where Senator Robert C. Byrd muscled in huge federal government operations), most of the state is, and has always been, one of the poorest in the nation. Its population is also getting older and older, as young West Virginians - especially college graduates - tend to leave for greener pastures. In other words, there is a constantly diminishing population of people who are working and paying taxes, and a constantly increasing number who are retired and being paid benefits.

Now there is an idea floating around the WV statehouse that proposes dumping the underfunded pension liability on the school district from which a teacher retired. In other words, school districts (which are all county-wide in WV) would have to pass additional - and sizable - local property tax levies in order to collect enough money to fund the pension liability. Clearly this is a move to shift the burden/blame from the state-level politicians to the county-level school boards. Of the many levels of unfairness in this approach, one is that the county school boards had no voice in the negotiation of these pension benefits - so why should they have to fund a mess they had no part in creating?

I'm going on and on about the WV situation because we are seeing a glimpse of the same kind of thinking in the HB315 legislation, which is meant to increase the public's contribution to retired teachers' health benefits fund to prevent it from going bust.

The retirement deal teachers get is not negotiated school board by school board - it's set by the General Assembly, and is a big part of the payoff the state teachers' union (the Ohio Education Association) gets for throwing its substantial support behind friendly candidates. And the General Assembly can pass laws which forces school districts to pay higher premiums when the investment performance of the STRS fund is not sufficient to cover projected retirement payouts. Those increased payment requirements are enforced by reducing the amount of our tax money the State of Ohio sends back to us in State Aid.

The defined benefit retirements plans are definitely the Golden Eggs for public employees, and the rest of us are, well - the Goose. And I think our backsides are getting a little sore.

1 comment:

"About 15,000 West Virginia school employees chose to transfer from the new Teachers Defined Contribution system, a 401(k)-type retirement savings program, into the old Teachers Retirement System, a program that guarantees a pension benefit based on their salaries.

The average teacher had saved just $33,944 in his or her TDC retirement account, according to state data. Of the 1,100 enrollees age 60 or older, only 23 had more than $100,000. None had more than $157,000.

In the defined contribution plan, employees were required to contribute 4.5 percent of their earnings, while those in the defined benefit system were required to contribute 6 percent.

Therefore, those who opt to switch to the older plan must pay an amount equivalent to 1.5 percent of their salary for every year spent in the defined contribution plan, plus 4 percent interest."